UK growth rises in third quarter, but summer boost cools off

The figures were driven primarily by strong retail sales during the football World Cup and a recovery in construction in July.

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Summer weather

The UK economy grew by 0.6% during the third quarter, but cracks are beginning to show as consumers cut back on spending.

The Office for National Statistics (ONS) said that the figure represents the fastest quarterly growth since the final quarter of 2016, when the economy expanded by 0.7%.

Growth was primarily driven by strong retail sales during the World Cup and a recovery in construction in July, when monthly Gross Domestic Product (GDP) was 0.3% higher.

(PA Graphics)

August and September were both flat, confirming economists’ fears that the heatwave’s boost to the economy faded towards the end of the summer.

Rob Kent-Smith, head of national accounts, said: “The economy saw a strong summer, although longer term economic growth remained subdued. There are some signs of weakness in September with slowing retail sales and a fall back in domestic car purchases.

The pound was largely unmoved following the news, trading 0.3% down versus the US dollar at 1.30 and flat against the euro at 1.14.

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Growth in construction and manufacturing output picked up in the third quarter following a weak start to the year, when building projects were delayed by adverse weather conditions.

The World Cup in Russia provided a boost for the economy in the summer months (Tim Goode/PA)

Output in the construction industry was 2.1% higher in the period, the fastest increase since the first quarter of 2017. Meanwhile, output from the services industries, which include retail, eased to 0.4% compared to 0.6% in the second quarter.

The strength in retail seen earlier in the summer continued into the beginning of the third quarter as consumers snapped up food and drink amid the hot weather and the World Cup. Retail growth slowed to 1.1% in the third quarter, following a 2% rise in the previous period.

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Motor trade services fell by 1.9%, the weakest quarterly growth rate since the final quarter of 2012.

The total trade deficit narrowed by £3.2 billion to £2.9 billion. Cars had the biggest impact on the balance of goods imports and exports due to a £1 billion rise in non-EU exports and a £1.7 billion fall in EU imports.

Net trade made the largest positive contribution to GDP growth in the third quarter.

Growth figures for the latest quarter meet the expectations of economists as well as the Bank of England’s most recent predictions. The Bank, which last week held interest rates steady, forecast 0.6% GDP growth for the third quarter.

It then expects growth to pare back to 0.3% in the fourth quarter before steadying at 0.4% thereafter. European Commission forecasts released on Thursday show the UK heading for the bottom of the EU growth league in 2019, under-performing every other member state except Italy, which is tied for last place.

The UK is expected to post 1.2% growth next year, compared with the fastest growing country, Malta, which is projected to grow by 4.9%.

This year GDP growth is seen at 1.3%, which will make the UK the third slowest-growing EU member.

Analysts said the strong quarterly growth masked an underlying weakness in the UK economy.

Will Hobbs, head of investment strategy at Barclays Smart Investor, said: “We should not be lulled into a false sense of security by a Q3 that was propped up by a bounce in consumption.

“Incoming private sector confidence surveys tell us very clearly that the sky is darkening a little for the UK as the realities of a hard Brexit start to weigh more visibly on short term private sector decision making.”

Howard Archer, chief economic adviser to the EY ITEM Club, pointed to a 1.2% quarterly fall in business investment as a sign of uncertainty hanging over the economy.

“Against this backdrop, the Bank of England’s recent hawkish rhetoric looks a little misguided and risks a further weakening in business and consumer confidence. With inflation on a downward trajectory and the UK’s growth outlook subdued, there remains sufficient scope for the central bank to keep interest rates on hold for some time yet.”